Articles Written by Patrick Kitchin

On June 23rd the California Supreme Court continued its ongoing reassessment of the relationship between the Federal Arbitration Act (FAA) and California’s laws and public policies. In Iskanian v. CLS Transportation Los Angeles (S204032), the Court held that California may not rely on its public policies as the basis for invalidating an employee’s agreement to resolve his or her claims on an individual basis through binding arbitration. Even if class action waivers function as exculpatory clauses by making it unlikely that employees with small-value claims will be able to effectively enforce their employment rights, class actions waivers must be given their full force and effect under the FAA.

Two years after the United States Supreme Court in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S.Ct. 1740] expressly rejected the public policy grounds relied upon by the California Supreme Court in Discover Bank v. Superior Court (2005) 36 Cal.4th 148, to invalidate a class action waiver in the consumer context, the Court in Iskanian now has expressly overruled Gentry v. Superior Court (2007) 42 Cal.4th 443. Thus, whether a class action waiver is part of a consumer contract (Discover Bank)or part of an employer’s arbitration agreement (Iskanian), public policy arguments and, with limited exceptions, unconscionability arguments, cannot be used to challenge the waiver’s validity under the FAA.

The California Supreme Court also held that the enforcement of class action waivers under the FAA does not violate sections 7 and 8 of the National Labor Relations Act (which give employees the right to “engage in other concerted activities” for their “mutual aid or protection”). Given “the FAA’s liberal policy favoring arbitration,” the sections 7 and 8 of NLRA must yield, the Court explained

With respect to representative claims under the California Private Attorney’s General Act (PAGA”), however, the Iskanian Court came to a different conclusion. Unlike private employment disputes between one employee and one employer involving statutory damages and specific civil penalties, PAGA claims are pursued by individuals serving as a proxy or agent of the state and are used to collect penalties (primarily) on behalf of California, not damages on behalf of individuals.

Finding that PAGA lawsuits are a type of qui tam action, the California Supreme Court held that the FAA does not preempt the PAGA. Consequently, California may enforce laws that invalidate agreements that purport to result in a waiver of an employee’s right to prosecute claims as a private attorney general under the PAGA. The right to bring a PAGA action is unwaivable. How PAGA can be prosecuted, whether in arbitration, in bifurcated proceedings, or otherwise, remains to be answered.

The dialogue between the United States Supreme Court and the California Supreme Court over issues relating to the FAA, arbitration and class proceedings is fascinating and ongoing. Will the California courts now see the dramatic increase in PAGA case filings forewarned in 2004 when the PAGA was dubbed by business groups and the defense bar as a bounty hunter’s law? Will Iskanian survive, or will the United States Supreme Court be called upon to again evaluate the reach of the FAA in California? The dialogue continues.

Salon owners in California who pay employees on a commission wage basis are subject to liability for failing to pay all wages due. Under California law “commissions” are a form of wages applicable only to an employee who sells a product or service, not to an employee who makes a product or provides a service to the employer’s customers. Keyes Motors v. DLSE 197 Cal.App.3d 557, (1987) Thus, salon employees in California whose job is to cut and/or color hair, must be paid on an hourly basis, a piece rate basis, or a combination of hourly wages and piece rate wages. Salon technicians who have been paid on a typical net commission basis are likely due unpaid wages and statutory penalties. Piece Rate Wages for Hair Stylists and Colorists California Assembly Bill 1513 (AB 1513) went into law on January 1, 2016, adding section 226.2 to the California Labor Code to address compensation for piece rate work. Piece rate workers are paid according to the number of units they complete. Piece rate units might be defined by the numbers of widgets assembled by a factory worker, the number of cars washed by a car washer or the number of haircuts given by a barber or cosmetologist. AB 1513 did not create new wage obligations, but instead codified the legal obligations described in two important appellate decisions that addressed the wages of piece rate workers back in 2013: Gonzales v. Downtown LA Motors, 215 Cal. App. 4th 36 (2013) and Bluford v. Safeway, Inc., 216 Cal. App. 4th 864 (2013). In Gonzales, the court held that mechanics who worked on a piece rate basis must be paid for their non-productive time (time during a shift when the worker was not actively engaged in compensable work). An employer, the court explained, cannot average the wages worked by an employee to show that the employee received at least minimum wage for all hours she was under the employer’s control. The employer must pay no less than the applicable minimum wage for every minute an employee is under its control, including time when no compensable work is being performed under a piece rate system. In Bluford, the court held that piece rate workers must also be paid separately for rest periods because rest periods under California law are deemed on-the-clock, compensable work time. If a piece rate worker is only paid by the unit, then she is not being compensated for rest periods in accordance with California law. So, although AB 1513 did not modify the duties described in the Gonzales and Bluford cases, it provided employers a “safe-harbor” period during which the employer could take steps to limit its liability to certain types of claims or lawsuits arising out of its misclassification of technicians as commissioned employees. To take advantage of the safe harbor protections, however, the employer was required to: (1) notify the California Department of Industrial Relations no later than July 1, 2016 that it is would pay wages due to employees who had not been compensated for non-productive time or rest periods (back to July 1, 2012)[i]; and (2) make the wage payments no later than December 15, 2016. Many piece rate employers failed to take advantage of these safeguards. Labor Code § 226.2, the product of AB 1513,...

The Ninth Circuit Court of Appeals has rejected a California employer’s challenges to class certification in a wage and hour class action lawsuit brought on behalf of 600 sales employees. At issue in the case was whether differences in the damages allegedly suffered by the sales employees made the claims too disparate to satisfy the legal requirements for class certification under Rule 23 of the Federal Rules of Civil Procedure. The employer argued that substantial differences in the alleged damages meant that the employees’ claims were not common to the whole group and that those differences were more dominate than the alleged common issues in the case. If the damages suffered by the employees (unpaid wages) would require individualized proof, the defendant argued, then the employees should not permitted to proceed on a classwide basis. They should be required to prove their claims on an individual basis in separate lawsuits. Rule 23 permits a plaintiff to sue as a class representative only if “there are questions of law or fact common to the class.” That means that the plaintiff can only proceed on a class basis if there exists a common factual or legal contention that is capable of classwide resolution. In other words, is it possible to reach a common answer to a question that is common to all members of the class? In Vaquero the employees alleged they were paid on a commission basis for sales but were not paid any wages for work they performed that was unrelated to sales (cleaning the stores, attending meetings and moving furniture). Under California law, they alleged, Ashley Furniture was required to pay them at least minimum wage for this additional work. Commonality The employees argued that Ashley Furniture’s failure to pay them for this extra work raised a common issue of fact and law that was easily capable of classwide resolution. The Ninth Circuit agreed: “If the company required sales associates to do work not “directly involved in selling” and failed to compensate the sales associates for such work, then it violated California’s minimum wage laws for all such employees.” As such, the Court determined, the claims satisfied Rule 23(a)(2). The issue was common to the class. Predominance Rule 23(b)(3) states that a class may only be certified if “questions of law or fact common to class members predominate over any questions affecting only individual members.” The employer argued that because the plaintiff would be required to prove how much non-sales time was incurred by each of the 600 employees, major differences and not commonality dominated the case. The Ninth Circuit disagreed. In a wage and hour case […] the employer-defendant’s actions necessarily caused the class members’ injury. Defendants either paid or did not pay their sales associates for work performed. No other factor could have contributed to the alleged injury. Therefore, even if the measure of damages proposed here is imperfect, it cannot be disputed that the damages (if any are proved) stemmed from Defendants’ actions. Thus, the Court concluded, the common issue relating to the defendant’s wage policies and practices was the predominate issue in the case, not the differences in the financial damages flowing from the company’s conduct. Rules Enabling Act Finally, the Ninth Circuit rejected the employer’s claim that the use of representative evidence based...

Over the years, Kitchin Legal has helped numerous small to mid-sized companies, including restaurants, general contractors, janitorial companies and healthcare providers, to understand and follow the complex laws governing the employment of workers in California. We have also helped such companies resolve employment claims through the courts, the California Division of Labor Standards Enforcement and the United States Department of Labor. There is one overriding lesson we have learned from representing these diverse companies and it is an obvious one: proactive litigation risk management is hundreds of times less costly than fighting employment-related lawsuits in any venue. One of the simplest and most cost-effective steps any company can take right now is to implement timekeeping, meal period and rest period policies that comply with California’s labor laws. Often, for less than the cost of a court filing fee, Kitchin Legal can help a company implement wage and hour policies that can mean the difference between avoiding a wage claim and defending the company against one. Let us help you to lower your company’s litigation risk profile...

Some restaurants in the San Francisco Bay Area are rethinking the tip or gratuity system we have all come to expect and accept. Instead of relying on tips to help increase wage levels for their employees, some restaurants are imposing service charges of up to 20% to augment wages, and telling their patrons that tips are no longer expected. Restaurant owners can distribute the service charges as wages to all employees, whether they working in the front or the back of the house. Employers use the proceeds from service charges to increase the hourly wages of employees who sometimes have not been included in the gratuity system (including cooks, dishwashers, food runners). Under California law service charges are not considered tips. Service charges are the amount a patron is required to pay under the terms and conditions of purchasing food and drinks at the restaurant. Service charges belong to the restaurant and not to the employees. Using service charges to augment wages for restaurant workers can raise legal issues that can expose a restaurant to liability for failing to pay the correct amount of overtime pay to an employee. [W]hen an employer distributes all or part of a service charge to its employees, the distribution may be at the discretion of the employer and the service charge, which would be in the nature of a bonus, would be included in the regular rate of pay when calculating overtime payments. California Division of Labor Standards, FAQ, Tips and Gratuities If a restaurant establishes a standard distribution of the service charge proceeds (for example, each busser working an eight hour shift is entitled to 10% of the total service changes received during the shift), then the additional wage payment can be characterized as a non-discretionary bonus. If the payment is deemed to be a non-discretionary bonus, then the employee’s overtime rate must be calculated to include the value of the service charge distribution. If the additional compensation is not included in the regular rate of pay, the restaurant could face a claim that it failed to pay all of the overtime wages that were due. While service charges are a creative way of creating and managing a fair wage system in a restaurant, they can also expose restaurants to significant liability. Talk with Mr. Kitchin or with another qualified employment attorney before implementing any new wage system in your...

The San Francisco Superior Court today approved a $200,000 Private Attorneys’ General Act settlement against BMW DriveNow prosecuted by Kitchin Legal. The settlement will result in the payment of substantial penalties to the state of California and to a group of 29 individuals who worked for BMW as “independent contractors.”

Employers sometimes respond to employee wage and hour claims in ways that cause them to sustain unnecessary financial loss and workplace stress. They pay more money in attorneys’ fees and litigation costs than they should. They sacrifice the time and resources of key employees over the course of litigation lasting a year or more. And they expose their workforce to the stress of an on-going lawsuit, leaving employees guessing as to what is happening in the case or, worse yet, directly participating in the proceedings. People take sides. Once litigation begins these same employers produce reams of internal documents to the employee’s attorney whose singular goal is to take as much money away from the company as the law permits on behalf of as many of the employer’s workers as possible. To add even more workplace stress and potential future loss to the equation, employers expose themselves to an increased risk that other employees will assert similar claims against them as they learn about the claims and the law. Click here to read full white paper: An Economically Rational Approach to Resolving Wage and Hour Claims In...

After months of complaining that a female co-worker had repeatedly harassed him to have sex with her, Rudolpho Lamas’s boss offered a suggestion. Maybe, the boss said, Rudolpho should try walking around the office singing, “I’m too sexy for my shirt.” Everyone at work thought the situation was hilarious: a widower turning down the explicit sexual advances of an attractive woman. But Rudolpho Lamas and his lawyers are not laughing. When does flirting at work cross the line and become sexual harassment under Title VII of the Civil Rights Act, Lamas’s lawyers asked. And, does Title VII impose different standards on men and women in sexual harassment cases? Finally, do gender stereotypes have a place in the jurisprudence of Title VII? Earlier this month the Ninth Circuit Court of Appeals in San Francisco answered Rudolpho’s attorneys’ questions in a case involving a man who alleged he had been sexually harassed by a female co-worker in direct violation of Title VII. (E.E.O.C. v. Prospect Airport Services (9th Cir. 9/3/2010).) The Court’s decision is interesting, not so much for its ultimate finding—that Title VII indeed provides equal protection to male and female victims of sexual harassment is well established—but for the way the Court considers socio-cultural stereotypes about gender in the context of a Title VII claim. Before turning to the drama of E.E.O.C. v. Prospect Airport Services, a few words about the stage on which Rudolpho Lamas’s story is now playing out. It is illegal to discriminate in the terms and conditions of employment based on the gender of a person under Title VII of the Civil Right Act. Under Title VII, sexual harassment is considered to be a form of sex discrimination. A Title VII sex harassment claim can be based on two theories of liability: (1) economic quid pro quo; or (2) hostile environment. In a typical case of quid pro quo sexual harassment, “a supervisor relies upon his [or her] apparent or actual authority to extort sexual consideration from an employee.” Hensen v. City of Dundee 682 F.2d 897 (11th Cir. 1982). “Have sex with me,” says the supervisor, “and you’ll get that promotion.” In a hostile work environment Title VII case, a co-worker or a supervisor’s gender-biased conduct is so severe or pervasive that the employee’s work environment is severely impacted. “[W]hen a supervisor sexually harasses a subordinate because of the subordinate’s sex, that supervisor “discriminate[s]” on the basis of sex.” Meritor Savings Bank, FSB v. Vinson, 477 US 57 (1986). And, of course, that is what Title VII’s gender provisions guard against: discrimination based on sex. This month’s Ninth Circuit case was based on the second of these two Title VII liability theories. To maintain a gender-based, hostile environment case, a worker must show that: (1) he or she was subjected to verbal or physical conduct of a sexual nature (2) the conduct was unwelcome, and (3) the conduct was “sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment.” Ellison v. Brady, 924 F.2d 872, 875-76 (9th Cir.1991) Element 1: Conduct of a sexual nature Lamas presented evidence that a female co-worker repeatedly asked him to go out with her and on several occasions made explicit references to her desire to have sex with him. She...

The Ninth Circuit Court of Appeals Weighs In On Workforce Classification Under California Law Every time I review an independent contractor agreement I find myself humming George and Ira Gershwin’s song, It Ain’t Necessarily So from Porgy and Bess. In California, at least, such agreements do not prove that a worker is an independent contractor. (“The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.” SG Borello & Sons v. Dept. of Industrial Relations) Were it otherwise, of course, companies and individuals who hire workers would have an incentive always to require workers to sign independent contractor agreements so they might avoid the costs associated with maintaining a workforce made up of employees. Complying with minimum and overtime wage requirements, paying workers’ compensation insurance premiums, and making rest and meal breaks available are significantly more burdensome and expensive than maintaining a workforce made up of independent contractors. Further, because independent contractors generally are not protected by federal or state anti-discrimination laws, maintaining a workforce comprised of independent contractors can shield companies from civil rights lawsuits. California’s Multi-Factor Approach Under California law the existence of an independent contractor agreement is only one of over a dozen factors used by the courts to evaluate whether a worker has been properly classified under the law. The most important factor is the “right to discharge at will, without cause.” In a state where employment is “at will,” but where contracts often include specific provisions pertaining to the termination of the contractor’s services, the right to fire a worker without apparent consequence is a prime indicator of an employment relationship. As the California Supreme Court ruled back in 1989, other factors crucial to the classification determination are: whether the one performing services is engaged in a distinct occupation or business; the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; the skill required in the particular occupation; whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; the length of time for which the services are to be performed; the method of payment, whether by the time or by the job; whether or not the work is a part of the regular business of the principal; whether or not the parties believe they are creating the relationship of employer-employee; the alleged employee’s opportunity for profit or loss depending on his managerial skill; the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers; the degree of permanence of the working relationship; and whether the service rendered is an integral part of the alleged employer’s business. California courts are required to evaluate the specific terms of engagement carefully and analyze the conditions under which a person works for another before reaching a classification determination in a wage and hour or discrimination lawsuit. Further, under California law, one who works for another is presumed to be an employee, unless the employing party proves otherwise. The burden of proving the existence of an independent contractor relationship shifts to the “employer” to demonstrate its classification is proper once a worker presents sufficient evidence that he or...

On August 5, 2010, the California Supreme Court issued a unanimous decision concerning the type of evidence a worker can rely upon to prove an employer discriminated against him or her. The Court’s decision concerns the so-called “stray remarks doctrine.” Justice Sandra Day O’Connor coined the term in a 1989 U.S. Supreme Court decision, writing that “stray remarks” made by “non-decisionmaking coworkers or remarks made by decisionmaking supervisors outside of the decisional process” are insufficient evidence of an employer’s discriminatory attitude. Without additional evidence of discrimination, she wrote, a gender discrimination claim can be and should be dismissed by the court before trial. In Price Waterhouse v. Hopkins (1989) 490 U.S. 228, the worker presented evidence that a partner of the firm told her to “walk more femininely,” “talk more femininely,” “dress more femininely,” “wear make-up,” “have her hair styled,” and “wear jewelry” to improve her chances for partnership. Justice O’Connor concluded that though such “stray remarks” might constitute evidence of a discriminatory attitude in the workplace, they are not sufficient evidence of discrimination on their own. When combined with more direct kinds of evidence of discrimination, however, stray remarks evidence can tend to support a discrimination claim. Since 1989, some federal courts have expanded the stay remarks doctrine substantially. In Hill v. Lockheed Martin, for example, the Fourth Circuit Court of Appeals ruled that remarks by non-decisionmakers that the worker was a “useless old lady” “who needed to retire” and was a “troubled old lady,” did not influence the decisional process directly and, therefore, were completely irrelevant to the worker’s discrimination claim. In its August 5th decision, the California Supreme Court concluded that the wholesale rejection of evidence of stray remarks, as suggested by the Fourth Circuit, is improper. It explained that such evidence can tend to show discriminatory animus or attitudes within the workplace. Under California law, then, stray remarks are relevant and cannot be completely ignored by the trial courts in ruling on pre-trial motions for summary judgment. While the California Supreme Court’s decision focuses on evidentiary issues and pretrial procedures, the importance of the decision for California workers is significant. Although a racial, sexual or age-based slur might not conclusively demonstrate employment discrimination, such stray remarks combined with other more direct evidence of discrimination (statistics, testimony, emails and the like) can be used to defeat a defendant’s motion for summary judgment before trial. The California Supreme Court explained that “[T]he stray remarks doctrine contains a major flaw because discriminatory remarks by a non-decisionmaking employee can influence a decision maker.” Thus, stray remarks can constitute evidence of discriminatory animus. The Supreme Court of California found another federal appellate court’s position on the stray remarks doctrine persuasive. In Shager v. Upjohn Co. (7th Cir. 1990) 913 F.2d 398, the Seventh Circuit Court of Appeals wrote: “If [the formal decision maker] acted as the conduit of [an employee’s] prejudice – his cat’s paw – the innocence of [the decision maker] would not spare the company from liability.” Thus, for example, discriminatory comments by a worker capable of influencing the actual decisionmakers can provide admissible evidence of discrimination by the employer. This is good news for workers in California who often find it difficult to unearth more direct evidence of discrimination. While the California Supreme Court ultimately concluded that,...

During the past several years, we have represented employees of several clothing retailers, including sales associates working for Polo Ralph Lauren, Gap and Banana Republic, and Chico’s in California-wide class action cases. All of these cases were prosecuted under California labor law. Our most recent employment class action against Polo Ralph Lauren challenged its failure to pay employees for the time they spent waiting for and undergoing “bag checks” or internal theft prevention inspections at the end of their shifts. Our clients alleged they sometimes had to wait for up to a half an hour for managers to perform bag checks and let them leave the stores. They alleged that under California law this off-the-clock time was “work” and that they were entitled to wages for the time they spent in their stores between “clock out and walk out.” Bag Checks Are Common In the Retail Setting In the retail store environment, many companies require employees to undergo bag check inspections before they can leave their stores for breaks or at the end of their shifts. According to industry experts, bag checks are a loss prevention tool used by retailers to discourage internal theft. These bag checks are permitted under California law and are generally a mandatory condition of employment for certain types of retail workers. The problem arises when employees are required to wait for their managers or other authorized personnel to perform bag checks on them after they have clocked out and are no longer being paid for their time. Is this waiting time compensable under California, however? Under California Law, an Employer’s Control Over the Worker Is Key With certain limited exceptions, hourly employees in California are entitled to be paid for all the time they are “subject to the control of an employer.” Bono Enterprises, Inc. v. Bradshaw (1995) 32 Cal. App. 4th 968. This “includes all the time the employee is suffered or permitted to work, whether or not required to do so.” Industrial Welfare Commission Order 7-2001. In the Polo case, our clients alleged they had been locked inside their stores after they had clocked out at the end of their shifts. From our clients’ perspective, physical confinement plainly satisfied the “control” requirement under California law. The Federal De Minimis Defense Polo defended the claims by relying on a federal legal doctrine called the de minimis defense. The de minimis defense arose out of the Portal-to-Portal Act (a 1947 amendment to the federal Fair Labor Standards Act). 29 U.S.C. § 254(a), a provision of the Fair Labor Standards Act, provides that certain activities performed before (preliminary) or after (postliminary) the worker’s principal activities are not compensable. Under the Fair Labor Standards Act, principle activities include any work of consequence performed for an employer, no matter when the work is performed. If the activity is necessary to the business and is performed by the employees for the primary benefit of the employer, it is generally compensable time, unless it is deemed to be de minimis. It is de minimis when the unpaid time is short, occurs infrequently and is difficult for the employer to track. Lindow v. United States, 738 F. 2d 1057 (9th Cir. 1984) As the United States Supreme Court explained more than 60 years ago, When the matter in issue concerns...